The European Commission has relaxed its interpretation of the Stability and Growth Pact to encourage governments to spend more on investment. 

The Stability and Growth pact sets maximum debt and deficit levels of 60% and 3% of GDP respectively.

It also specifies how governments are to take actions to reduce their debt and deficit levels to comply with the pact.

However new guidance issued today gives governments more flexibility to spend money on growth-enhancing investments during economic downturns, without running foul of the Stability Pact.

The new guidance - which comes into effect immediately - is likely to benefit France and Italy straight away.

Draft budgets from both countries failed to meet the rules when they were submitted for EU approval last October, but the Commission has delayed making a ruling on whether they contravene the Stability Pact.

The easing of the rules only applies to countries where GDP growth is negative or well below potential, and only covers money used to co-finance EU structural and cohesion projects.  

As Ireland is the fastest growing economy in the EU its not clear if the change will have much impact on budget planning here.

Valdis Dombrovskis, the European Commission's vice president for the euro, said countries that obeyed the rules "can then enjoy bigger flexibility" under the changes.

"We are clarifying how we will implement the existing rules of the pact: we are not changing or replacing the rules," he told a press conference at the European Parliament in Strasbourg.

"The idea is to reach a more intelligent interpretation of the pact," said Economics Affairs Commissioner Pierre Moscovici.

The new reading of EU rules is a fresh effort to get them back in line without resorting to humiliating penalties, or the type of close scrutiny imposed on troubled Greece, Portugal and Spain at the height of the euro zone crisis.

"Europe is moving away from blind austerity. We can now use the Stability and Growth Pact and the fiscal treaty in a smarter way," said Gianni Pittella, the head of the Socialists group in the European Parliament.